26 U.S. Code § 406 - Employees of foreign affiliates covered by

For purposes of applying this part with respect to a pension, profit-sharing, or stock bonus plan described in section
401(a) or an annuity plan described in section 403(a), of an American employer (as defined in section
3121(h)), an individual who is a citizen or resident of the United States and who is an employee of a foreign affiliate (as defined in section 3121(l)(6)) of such American employer shall be treated as an employee of such American employer, if—

(1)such American employer has entered into an agreement under section
3121(l) which applies to the foreign affiliate of which such individual is an employee;

(2)the plan of such American employer expressly provides for contributions or benefits for individuals who are citizens or residents of the United States and who are employees of its foreign affiliates to which an agreement entered into by such American employer under section
3121(l) applies; and

(3)contributions under a funded plan of deferred compensation (whether or not a plan described in section
401(a) or
403(a)) are not provided by any other person with respect to the remuneration paid to such individual by the foreign affiliate.

(b) Special rules for application of section
401(a)

(1) Nondiscrimination requirements

For purposes of applying section
401(a)(4) andsection
410(b) with respect to an individual who is treated as an employee of an American employer under subsection (a)—

(A)if such individual is a highly compensated employee (within the meaning of section
414(q)), he shall be treated as having such capacity with respect to such American employer; and

(B)the determination of whether such individual is a highly compensated employee (as so defined) shall be made by treating such individual’s total compensation (determined with the application of paragraph (2) of this subsection) as compensation paid by such American employer and by determining such individual’s status with regard to such American employer.

(2) Determination of compensation

For purposes of applying paragraph (5) of section
401(a) with respect to an individual who is treated as an employee of an American employer under subsection (a)—

(A)the total compensation of such individual shall be the remuneration paid to such individual by the foreign affiliate which would constitute his total compensation if his services had been performed for such American employer, and the basic or regular rate of compensation of such individual shall be determined under regulations prescribed by the Secretary; and

(B)such individual shall be treated as having paid the amount paid by such American employer which is equivalent to the tax imposed by section
3101.

For purposes of applying section
404 with respect to contributions made to or under a pension, profit-sharing, stock bonus, or annuity plan by an American employer, or by another taxpayer which is entitled to deduct its contributions under section
404(a)(3)(B), on behalf of an individual who is treated as an employee of such American employer under subsection (a)—

(1)except as provided in paragraph (2), no deduction shall be allowed to such American employer or to any other taxpayer which is entitled to deduct its contributions under such sections,

(2)there shall be allowed as a deduction to the foreign affiliate of which such individual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section
404 by the American employer if he were an employee of the American employer, and

(3)any reference to compensation shall be considered to be a reference to the total compensation of such individual (determined with the application of subsection (b)(2)).

Any amount deductible by a foreign affiliate under this subsection shall be deductible for its taxable year with or within which the taxable year of such American employer ends.

(e) Treatment as employee under related provisions

An individual who is treated as an employee of an American employer under subsection (a) shall also be treated as an employee of such American employer, with respect to the plan described in subsection (a)(2), for purposes of applying the following provisions of this title:

(1)Section
72(f) (relating to special rules for computing employees’ contributions).

1984—Subsec. (a). Pub. L. 98–369, § 491(d)(13), substituted in introductory provision “or an annuity plan described in section
403(a)” for “, an annuity plan described in section
403(a), or a bond purchase plan described in section
405(a)”.

Subsec. (b). Pub. L. 98–21, § 321(e)(2)(A), substituted reference to an American employer for reference to a domestic corporation, and reference to an affiliate for reference to a subsidiary, wherever appearing.

Subsec. (c). Pub. L. 98–21, § 321(e)(2)(A), substituted reference to an American employer for reference to a domestic corporation, and reference to an affiliate for reference to a subsidiary, wherever appearing in provisions preceding par. (1) and in pars. (1) and (2).

Subsec. (c)(3). Pub. L. 98–21, § 321(e)(2)(A), (B), substituted “foreign affiliate by reason of which he is treated as an employee of such American employer, if he becomes an employee of another entity in which such American employer has not less than a 10-percent interest (within the meaning of section
3121(l)(8)(B)” for “foreign subsidiary by reason of which he is treated as an employee of such domestic corporation, if he becomes an employee of another corporation controlled by such domestic corporation”.

Subsec. (d). Pub. L. 98–21, § 321(e)(2)(A), (C), substituted references to an American employer for references to a domestic corporation and reference to an affiliate for a reference to a subsidiary wherever appearing, substituted “another taxpayer” for “another corporation” in provisions preceding par. (1), and substituted “any other taxpayer” for “any other corporation” in par. (1).

Amendment by section 1401(b)(7) ofPub. L. 104–188applicable to taxable years beginning after Dec. 31, 1999, with retention of certain transition rules, see section 1401(c) ofPub. L. 104–188, set out as a note under section
402 of this title.

Amendment by section 1402(b)(2) ofPub. L. 104–188applicable with respect to decedents dying after Aug. 20, 1996, see section 1402(c) ofPub. L. 104–188, set out as a note under section
101 of this title.

Effective Date of 1992 Amendment

Amendment by Pub. L. 102–318applicable to distributions after Dec. 31, 1992, see section 521(e) ofPub. L. 102–318, set out as a note under section
402 of this title.

Effective Date of 1989 Amendment

Amendment by section 7811(g)(3) ofPub. L. 101–239effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 ofPub. L. 101–239, set out as a note under section
1 of this title.

Amendment by section 7831(f) ofPub. L. 101–239effective as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 7831(g) ofPub. L. 101–239, set out as a note under section
1 of this title.

Pub. L. 101–239, title X, § 10201(c),Dec. 19, 1989, 103 Stat. 2472, provided that: “The amendments made by this section [amending this section, section
3121 of this title, and section
410 of Title
42, The Public Health and Welfare] shall apply with respect to any agreement in effect under section 3121(l) of the Internal Revenue Code of 1986 on or after June 15, 1989, with respect to which no notice of termination is in effect on such date.”

Effective Date of 1988 Amendment

Amendment by Pub. L. 100–647effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) ofPub. L. 100–647, set out as a note under section
1 of this title.

Effective Date of 1986 Amendment

Amendment by section 1112(d)(3) ofPub. L. 99–514applicable to plan years beginning after Dec. 31, 1988, with special rule regarding collective bargaining agreements ratified before Mar. 1, 1986, and with provision for waiver of excise tax on reversions, see section 1112(e) ofPub. L. 99–514, set out as a note under section
401 of this title.

Amendment by section 1114(b)(9)(A), (C) ofPub. L. 99–514applicable to years beginning after Dec. 31, 1988, see section 1114(c)(3) ofPub. L. 99–514, set out as a note under section
414 of this title.

Pub. L. 99–514, title XVIII, § 1852(e)(2)(E),Oct. 22, 1986, 100 Stat. 2868, provided that: “The amendments made by this paragraph [amending this section and section
407 of this title and repealing section
2517 of this title] shall apply to transfers after the date of the enactment of this Act [Oct. 22, 1986].”

Effective Date of 1984 Amendment

Amendment by Pub. L. 98–369applicable to obligations issued after Dec. 31, 1983, see section 491(f)(1) ofPub. L. 98–369, set out as a note under section
62 of this title.

“(1)(A) The amendments made by this section [amending this section and sections
407,
1402,
3121, and
6413 of this title and section
410 of Title
42, The Public Health and Welfare] (other than subsection (d) [amending section
407 of this title]) shall apply to agreements entered into after the date of the enactment of this Act [Apr. 20, 1983].

“(B) At the election of any American employer, the amendments made by this section (other than subsection (d)) shall also apply to any agreement entered into on or before the date of the enactment of this Act. Any such election shall be made at such time and in such manner as the Secretary may by regulations prescribe.

“(2)(A) The amendments made by subsection (d) [amending section
407 of this title] shall apply to plans established after the date of the enactment of this Act [Apr. 20, 1983].

“(B) At the election of any domestic parent corporation the amendments made by subsection (d) shall also apply to any plan established on or before the date of the enactment of this Act. Any such election shall be made at such time and in such manner as the Secretary may by regulations prescribe.”

Effective Date of 1974 Amendment

Amendment by section 1016(a)(4) ofPub. L. 93–406applicable, except as otherwise provided in section 1017(c) through (i) ofPub. L. 93–406, for plan years beginning after Sept. 2, 1974, but, in the case of plans in existence on Jan. 1, 1974, amendment by Pub. L. 93–406applicable for plan years beginning after Dec. 31, 1975, see section 1017 ofPub. L. 93–406, set out as an Effective Date; Transition of Rules note under section
410 of this title.

Amendment by section 2005(c)(12) ofPub. L. 93–406applicable only with respect to distributions or payments made after Dec. 31, 1973, in taxable years beginning after Dec. 31, 1973, see section 2005(d) ofPub. L. 93–406, set out as a note under section
402 of this title.

Effective Date of 1969 Amendment

Amendment by Pub. L. 91–172applicable to taxable years ending after Dec. 31, 1969, see section 515(d) ofPub. L. 91–172, set out as a note under section
402 of this title.

Effective Date

Pub. L. 88–272, title II, § 220(d),Feb. 26, 1964, 78 Stat. 63, provided that: “The amendments made by subsections (a) [enacting this section], (b) [enacting section
407 of this title], and (c)(1) [amending the analysis preceding section
401 of this title] shall apply to taxable years ending after December 31, 1963. The amendments made by subsections (c)(2) [amending section
3121 of this title] and (3) [amending section
409 of Title
42, The Public Health and Welfare] shall apply to remuneration paid after December 31, 1962.”

Regulations

Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 1112 and 1114 ofPub. L. 99–514, see section 1141 ofPub. L. 99–514, set out as a note under section
401 of this title.

Plan Amendments Not Required Until January 1, 1998

For provisions directing that if any amendments made by subtitle D [§§ 1401–1465] of title I of Pub. L. 104–188require an amendment to any plan or annuity contract, such amendment shall not be required to be made before the first day of the first plan year beginning on or after Jan. 1, 1998, see section 1465 ofPub. L. 104–188, set out as a note under section
401 of this title.

Plan Amendments Not Required Until January 1, 1994

For provisions directing that if any amendments made by subtitle B [§§ 521–523] of title V of Pub. L. 102–318require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1994, see section 523 ofPub. L. 102–318, set out as a note under section
401 of this title.

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and
1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 ofPub. L. 99–514, as amended, set out as a note under section
401 of this title.

LII has no control over and does not endorse any external Internet site that contains links to or references LII.